In Push for Free Market, NMDPRA Begins Implementation of New Gas Pricing Framework

* Nigeria to tie domestic prices to international benchmark

Emmanuel Addeh

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) at the weekend said that it had established a new Domestic Base Price (DBP) framework and applicable gas wholesale price for the sector.

Chief Executive Officer of the organisation, Mr. Farouk Ahmed, who disclosed this in a statement in Abuja, stated that the new framework was in fulfilment of the relevant sections of the new Petroleum Industry Act (PIA) 2021.

The law, which was assented to by the President Muhammadu Buhari on the 16th of August 2021 and gazetted on August 27, 2021, Ahmed said, provides a clear regulatory framework for the determination of a market-based pricing regime for the domestic gas market in Nigeria.

Ahmed indicated that the applicable wholesale gas price for the power sector shall be the established domestic gas price.

He hinted that the base price would be determined annually based on the criteria set in the third schedule of the Act, which are to reference base prices in Nigeria to prices of gas in countries with significant reserves and production of natural gas.

He said it would also involve ensuring that base price considers the lowest cost of gas supply based on a “three-tier cost of supply framework,” which is related market-prices tied to international benchmarks for strategic investors.

The midstream/downstream boss said the domestic base price shall be the export parity price at the delivery point where there is a dominant supply of gas in Nigeria.

He clarified that export parity price in this context was a market-driven pricing framework, responsive to fiscal changes and weighed to ensure pricing flexibility while moderating swings to protect fragile domestic industries.

He further explained that the pricing framework for gas conversion industries namely: ammonia, urea, methanol, polypropylene, Low Sulphur Diesel (GTL), shall be as currently specified under the fourth schedule.

The NMDPRA helmsman highlighted that the other commercial sub-sectors consisting of cement, non-grid power, iron and steel industries, aluminium and all such industries requiring gas for heating shall be the base price in addition to $0.50.

He stressed that the prices shall apply to gas supplied under the domestic gas delivery obligation which shall be determined by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) under Section 110 of the PIA.

The NMDPRA boss revealed that the Authority was consulting with industry stakeholders in the development of base price and applicable wholesale prices for the domestic gas market.

“This is in line with section 167 and third and fourth schedule of the Act, which require the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to determine the Domestic Base Price (DBP), three months following the effective date of the Act,” the statement added.

Ahmed assured that an industry-wide stakeholder engagement would equally be conducted before the final declaration of the 2022 base price and wholesale price of gas to the strategic sectors.

He expressed appreciation to all investors in the domestic gas market and assured them of the Authority’s commitment to ensuring transparency and deepening the domestic gas market.

Furthermore, he stated that the organisation was committed to creating an investor-friendly business environment, and dutifully implement all the provisions of the new regulatory framework.

The implication of the framework is that the federal government has begun the push for a free market regime in gas pricing in the country, a development that has always been advocated by players in the sector to attract additional investment.

Gas users outside the power sector and the gas based industry would pay at least $0.5 higher and their cost of purchase will depend on negotiations with their suppliers.

The midstream and downstream regulatory authority, “may, by regulations, change the domestic base price and the yearly increase to reflect changed market conditions and supply frameworks”, according to the law.

In the build-up to the passage of the bill, Minister of State, Petroleum Resources, Mr Timipre Sylva had argued that: “This price level should be sufficiently attractive to increase gas production significantly since this gas price will be comparable with gas prices in other emerging economies with considerable gas production.”

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